TOO BIG TO FRACKING FAIL?

toobigtofail

With oil and natural gas trading at lows not seen since 2003 it is obvious the fossil fuel industry is hurting.

The numbers are becoming brutal reading for the industry: The oil price has collapsed more than 70 percent since mid-2014.   The natural gas market is tied to oil, and as oil plummets so does natural gas.

The markets have been further spooked by lifting of sanctions on Iran and the pending flood of a million or more barrels of oil into the glutted market.

Below are screen shots of NYMEX for Oil and Gas taken on 1/19/16.

oil-gas-1-19-2016An article titled Half of U.S. Fracking Industry Could Go Bankrupt as Oil Prices Continue to Fall, by Andy Rowell, Oil Change International stated:

Last week, one analyst predicted that half of U.S. shale oil producers could go bankrupt before the oil price rebalances itself.

Fadel Gheit, a senior oil and gas analyst at Oppenheimer & Co believes it could be two years before oil stabilizes near $60, which is still below the break-even point for many shale producers.

“Half of the current producers have no legitimate right to be in a business where the price forecast even in a recovery is going to be between, say, $50, $60. They need $70 oil to survive,” he told CNBC.

Earlier this year, Sandridge Energy was delisted from the New York Stock Exchange for not keeping their stock price above $1.00. Sandridge is not alone, there is a long list of cash-strapped oil exploration and production (E&P) companies were earlier warned by NYSE that they might face delisting for not keeping their stock price above $1.00.

WILL THE FRACKERS BE ALLOWED TO FAIL?
Many groups are seeing the falling prices and financially troubled corporations as a good reason to break the fossil fuel habit and really get serious about renewable-sustainable energy sources.

As Fossil fuel corporations are crying poor mouth they are asking for more government help beyond the billions in subsidies they already receive. They successfully pushed to lift the 40 year ban on oil exports.

In Pennsylvania, the natural gas industry defeated the severance tax, and gained $12-million through a back door amendment to House Bill 1327. This amendment moves $12 million from the Alternative Energy Investment Act and puts it into a new Natural Gas Infrastructure Development Fund, delays implementation of the federal Clean Power Plan and handcuffs new regulations on oil and gas operators.

According to ZEROHEDGE.COM , Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears:

Which brings us to the focus of this post: earlier this week, before the start of bank earnings season, before BOK’s startling announcement, we reported we had heard of a rumor that Dallas Fed members had met with banks in Houston and explicitly “told them not to force energy bankruptcies” and to demand asset sales instead.

We can now make it official, because moments ago we got confirmation from a second source who reports that according to an energy analyst who had recently met Houston funds to give his 1H16e update, one of his clients indicated that his firm was invited to a lunch attended by the Dallas Fed, which had previously instructed lenders to open up their entire loan books for Fed oversight; the Fed was shocked by with it had found in the non-public facing records. The lunch was also confirmed by employees at a reputable Swiss investment bank operating in Houston.

This is what took place: the Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down. Furthermore, as we reported earlier this week, the Fed indicated “under the table” that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches.

In other words, the Fed has advised banks to cover up major energy-related losses.

Key takeaway is “…told them not to force energy bankruptcies and to demand asset sales instead.”

 Does this mean the frackers are considered too big to fail in the same way the banksters were in 2008 and a bail out (on the backs of taxpayers) is just around the corner?

©2016 by Dory Hippauf

 

 

Advertisements

One comment

  1. Well, sounds a lot like the failure of the TBTF banks to “mark to market” all of their sketchy, sub-prime real estate and home mortgage portfolios when TSHTF back in 2008. This business with the Fed “advising” banks to go easy on the soon-to-be-bankrupt frackers by forcing asset auctions instead of bankruptcy makes it clear that, once again, the Fed will do what ever it takes to bend reality rather than face the truth.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s